Romania has introduced a new law on public-private partnerships (“PPP”) which aims to provide the means by which major infrastructure projects will be built in Romania over the next few years and offer clearer guidance for investors seeking opportunities in the Romanian PPP market. The Law on public-private partnership no. 178/2010 was published in the Romanian Official Gazette on 5 October 2010 and enters into force on 3 November 2010 (“PPP Law”).
The PPP Law provides a flexible contractual mechanism for PPP in Romania (the “PPP Contract”) and makes clear the distinction between contracts governed by pre-existing public procurement legislation and PPP Contracts under the new PPP law. This article provides a summary of some of key features of the new legal regime.
Selection of the private partner and award of PPP contracts
Under the PPP Law, projects will be initiated by the public sector partner which will publish a call for offers from private investors through the Electronic Public Procurement System (“SEAP”) and (if the value of the PPP project exceeds € 5 million) in the Official Journal of the European Union.
After receiving the offers from investors, the public partner will enter into negotiations with a shortlist of potential partners, before settling on one party to enter into the PPP Contract.
All decisions made by the public entity throughout the process of initiating and awarding the PPP Contract will be open to challenge by any interested investor that is willing to put up a bond of 2% of the project value. However, challenges made through the courts will not suspend the selection and award process, and challenges made directly to the public entity will not delay the process by more than 5 working days.
The National Authority for Regulation and Monitoring the Public Procurement (“ANRMAP”) is an independent public body that can judicially challenge PPP Contracts entered into in breach of the PPP Law.
The Project Company
Upon signing the PPP Contract, the project company will be incorporated in Romania with the public entity and the investor as shareholders, and it will be subject to the following special provisions:
- the project company will be incorporated only for the duration of the PPP Contract and liquidated upon termination.
- the assets of the PPP will be managed by the project company based on a management and services agreement made between the project company and the public and private partners.
- the project company’s object of activity will be the operation and management of all the stages of the PPP project until termination.
- the project company has no authority over matters relating to the ownership of assets contributed by the public entity or the assignment of public entity’s contractual rights.
Terms of the PPP Contract
The PPP law sets requirements for the terms and conditions of PPP Contracts. The PPP Contract will:
- apply to one PPP project only and cover all the aspects of this project;
- govern the relationship between the partners of the PPP;
- cover the liabilities, value of the financing and risks;
- provide that the rights and obligations of the partners cannot be assigned to third parties; and
- require the approval of the Romanian Government or of the public entity entering the PPP Contract.
The PPP Contract can allow for assets of the PPP Contract and the cash flow to be considered non assets under European and national accounting regulations.
Other than the mandatory provisions of the PPP Law above and other applicable legislation, the parties are free to negotiate
the terms and conditions
of the PPP Contract.
Termination of the PPP Contract and continuing obligations
All the assets of the PPP may be mortgaged for the duration of the PPP and will be transferred to the public sector automatically upon termination of the project.
If the contract is terminated before the completion of the project, the private investor must ensure the continuity of the public service until the public entity or a new investor takes over its contractual obligations.
If a private investor terminates the contract, the public entity or the project company is under no obligation to pay the investor any of its project costs.
In our opinion the new PPP law is a positive legislative development for the PPP market and shows the Government’s willingness to see a greater number of more sophisticated PPP deals in Romania. We anticipate that the new legal regime will provide a mechanism for growth in the PPP market.
Secondary legislation
Secondary legislation (i.e. the Methodology for implementation of the PPP Law) is expected to enter into force by the end of 2010.
